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Capital Adequacy - Coggle Diagram
Capital Adequacy
Basel Agreement Background
The Basel Agreement / Accord
Capital requirement
Differentiate assets with diff risks
Define capital on ability to absorb losses
Basel I
Basel II
Pillar 1: Regulatory minimum capital requirements for credit, market, and operational risk
Pillar 2: Stressed the importance of regulatory supervisory review process as a critical complement to minimum capital requirements
Pillar 3: Encourage market discipline
Basel III
Raised quality and quantity of capital with a focus on common equity
Leverage ratio as a backstop
CCB and CCyB
Minimum global liquidity standards
Introduced additional capital surcharge
Additional Capital Requirements under Basel III
Capital Conservation Buffer
Countercyclical Capital Buffer
Globally systemically important banks (GSIBs)
Leverage ratio
Defining Capital
Market vs Book value
Capital adequacy and insolvency risk
Major functions of capital
Absorb unanticipated losses
Protect uninsured depositors, bondholders, and creditors
Protect FI insurance funds and taxpayers
Protect FI owners against increases in insurance premiums and lowering the cost of funds
Fund the FI's investment activities
Capital Ratios
Capital
CET1
Additional Tier 1 Capital
Tier 2 Capital
Risk-based capital ratios
RWA
Risk adjustments
Credit risk adjustment
On-balance sheet
Off-balance sheet
Market risk adjustment
Operational risk adjustment
Interest rate risk adjustment
CET1 risk-based
Tier 1 risk-based
Total risk-based
Leverage ratio
Off-balance sheet assets
Contingent guarantor contracts
Derivative contracts